India Economy - Foreign Trade - Exports at a multi-year low: AnandRathi Financial Services

Mr. Sujan Hajra(Chief Economist - AnandRathi Financial Services) on India Economy - Foreign Trade - Exports at a multi-year low

At $9.8bn, the Nov'15 trade deficit held unchanged, as export and import growth contracted sharply, by respectively 24.4% and 30.3%. The major factors for the drag on exports were the contractions in engineering goods, gems & jewellery and petroleum products. The fall in imports was broad-based, excluding imports of electronic goods. Oil imports touched a nine-month low. We are concerned about export growth since the trend is still downward. The slowdown in non-gold, non-oil imports is likely to prolong the manufacturing-capex recovery.

$20bn exports, a multi-year low. Shrinking exports picked up momentum in Nov'15, to -30.3% (vs. -21.2% the month prior). In absolute terms, exports touched a multi-year low of $20bn. The major contributors were petroleum products (-54%); engineering goods (-29%) and gems & jewellery (-22%). Ytd, exports contracted 18.3% (vs. 4.1% growth last year).

Imports, negative for twelve months. Nov'15 imports shrunk 30.3% (vs. Oct'15's 21.2% fall). In absolute terms, imports were at a nine-month low of $29.8bn. Gold imports in Nov'15 touched a four-month high of $3.5bn. November being a festival and wedding season, gold imports that month tend to be high.

Oil deficit below $5bn. Compared to the average oil deficit of $7.8bn in 8M FY15, this year the oil deficit averaged $5.1bn. In Nov'15 oil imports and exports contracted by, respectively, 45% and 54%.

Non-gold, non-oil imports contract 22%. This segment has been negative for the fifth consecutive month. In Nov'15, non-gold, non-oil imports contracted 22% (vs. -0.8% the previous month).

Trade deficit in single digits. At $9.8bn, the Nov'15 trade deficit was unchanged from the month prior. The trade deficit for 8M FY16 was $87bn (vs. $103bn for 8M FY15).

Services-trade surplus improves as services imports fall. Services-trade data show the trade surplus rose to $6.3bn in Nov'15 (vs. $5.9 in Oct'15).

Assessment and Outlook. We are concerned about export growth since the trend is still southward. Despite the depreciation of the rupee against the dollar, it has appreciated against the EM currencies. In addition, global growth has been affecting our export growth, which continues to be soft since economies of China and Japan have been slowing down. While we expect the oil deficit to be low so long as crude-oil prices are low, the drop in non-gold, non-oil imports is worrisome. Poor figures indicate that manufacturing capex recovery is likely to be slow and prolonged. If the Fed does increase the interest rates tomorrow, short-term pressure on the exchange rate could be seen. At this time global growth and geopolitical risks are the looming concerns over our exports and imports.

Source : Equity Bulls

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